Pound strengthens as UK inflation accelerates to nine-year high

The pound firmed on Wednesday, after the UK reported a massive surge on inflation last month.

Trade in Sterling is mixed so far this morning, with GBP/EUR stable at €1.1720, while GBP/USD slips to $1.3817. GBP/CAD is muted at CA$1.7459, while GBP/AUD and GBP/NZD tick higher to AU$1.8885 and NZ$1.9440 respectively.

Coming up, will another contraction in US retail sales growth send the US dollar lower this afternoon?

What’s been happening?

The pound stuck higher through yesterday’s trading session, bolstered by the release of the UK’s consumer price index.

August’s CPI figures revealed domestic inflation shot up to 3.2%, surging from 2% in July and bolstering hopes that the Bank of England (BoE) could start tightening its monetary policy in the near-term.

However, Sterling later eased from its best levels, amidst the political uncertainty which surrounded Boris Johnson’s cabinet reshuffle.

The euro, meanwhile, traded with modest gains on Wednesday on the back of the Eurozone’s latest industrial production release, after factory output printed much higher than expected in July.

At the same time, in spite of concerns over the Chinese economy unnerving investors at the start of the session, the US dollar trended lower yesterday as the ‘greenback’ continued to be undermined by the recent softer US inflation print.

What’s coming up?

Top of the agenda today will be the publication of the latest US retail sales figures later this afternoon.

These could see the US dollar face some headwinds as economists forecast August’s figures will report growth contracted for the second month in the row, as the Delta variant weighs on consumer spending.

Also set to influencing USD exchange rates will be last week’s initial jobless claims. Will another drop in new claims help to limit any potential downside in the ‘greenback’?

In the meantime, EUR investors will look to a speech by European Central Bank (ECB) President Christine Lagarde for fresh impetus today, with the euro likely to soften if she reaffirms the ECB’s current dovish bias.

Finally, in the absence of any notable UK data, the pound might find itself without any strong directional bias today.